Korea’s Inflation Cools More Than Expected, Offering Some Relief

nj}0nqclllqt5fr)6dsak0a5_media_dl_1.png Ministry of Data and Statistics

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(Bloomberg) — South Korea’s consumer inflation slowed more than expected in July, easing back below 3% and offering policymakers some relief after price growth accelerated to its fastest pace since late 2023 the previous month.

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Consumer prices rose 2.8% from a year earlier in July, the slowest pace since April, after the 3.2% pace in June, data from the Ministry of Data and Statistics showed Tuesday. The reading compared with the median estimate of 3% in a Bloomberg survey of economists.

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Core inflation, which strips out volatile food and energy prices, picked up a tad to 2.6%, suggesting underlying price pressures remained broadly stable despite the moderation in headline inflation.

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While the slowdown may ease concerns that inflation is accelerating again, the reading is still well above the Bank of Korea’s target rate, and is therefore unlikely to alter its policy outlook. Officials have continued to argue that resilient consumer prices, growth and elevated housing prices warrant maintaining a tightening bias.

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The inflation report comes after the central bank raised its benchmark interest rate by 25 basis points to 2.75% last month, its first increase since January 2023. Governor Shin Hyun Song said inflation is expected to stay above the bank’s 2% target for quite some time as conflicts in the Middle East continue, and any further rate hikes will depend on price pressures, growth and financial market stability.

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The latest data also follow another month of robust export growth, with semiconductor shipments continuing to underpin South Korea’s artificial intelligence-driven expansion. Strong investment and exports have helped offset weakness in pockets of the domestic economy, while supporting expectations that price pressures could remain persistent.

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South Korea’s economy expanded 0.6% in the second quarter from the previous three months, beating economists’ expectations. The government expects growth to reach 3% this year, a projection that’s more optimistic than forecasts by the BOK and the International Monetary Fund, as AI-related investments continue to boost exports and domestic demand.

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The advance in the CPI was led by transportation costs, which rose 7.7% in July from a year earlier, while recreation and culture gained 5.5%. Food and lodging increased 2.8% and household goods and services climbed 3%.

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Broader consumer-price increases remained modest, with communication costs gaining 0.7% and food and non-alcoholic beverage prices rising 0.9%.

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